Barnes & Noble Inc. and Microsoft Corp. say they are teaming up to create a new Barnes & Noble subsidiary that will house the digital and college businesses of the bookseller and include a Nook application for Windows 8.

Boldfaced emphasis added by me.

That’s the key to the investment right there.

Barnes & Noble doesn’t realize it yet, but Microsoft just stole their college textbook business and wiped out the Nook tablets.

Stop and think about it: If you’re using a Windows 8 tablet to view a college textbook via a free app, why do you need to buy any Nook hardware at all?

You don’t.

And I don’t see Barnes & Noble — or its NewCo — producing large-size tablets for textbooks.

If Barnes & Noble didn’t see that, they’re the biggest suckers in the world.

$300M to grab the textbook market from B&N is cheap. $300M to neutralize competing Nook hardware is cheap.

I’ve said that B&N should produce a Nook Touch that’s basically an eInk tablet with its Nook software as an app.

That’s basically what Microsoft just did to the NookColor and Nook Tablet: wipe them out as hardware and reduce them to an app that runs on Microsoft tablets.

Gee, do you think that Nook textbook app will run on iOS or Android?

This move puts Kobo in a very tight spot, at least in the American market.

And Apple should be paying attention now.

What software will Microsoft develop so those new interactive textbooks can be published? If Microsoft was smart — and there’s only a dim chance of this — it’d aim smack at the heart of iBooks Author and create the ePub Author we all need.